The EPA vs. State Economies

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The EPA vs. State Economies

On Friday, the Environmental Protection Agency rejected petitions from the governors of Georgia, Texas, Arkansas, Delaware, Maryland, New Mexico, and North Carolina to suspend the biofuel-blending requirements established by the federal renewable fuel standard (RFS) program.

This program requires refiners to blend increasing quantities of biofuel — mostly corn ethanol — into the nation’s motor-fuel supply. The 2012 target is to blend 13.2 billion gallons of biofuel into our gasoline, a quantity that ratchets up to 13.8 billion gallons in 2013. This year, about 4.7 billion bushels, or 40 percent of the nation’s corn crop, will be consumed by ethanol manufacturing. The governors contend that the RFS program, combined with the worst drought in 50 years, pushed corn prices to record highs, harming their states’ poultry, beef, pork, and dairy producers, who use corn as animal feed. The Clean Air Act authorizes Lisa P. Jackson, the EPA’s administrator, to waive the RFS targets for one year if those requirements would “severely harm” the economy of a state, a region, or the United States as a whole.

The RFS program guarantees that the gas we buy contains up to 10 percent ethanol and may soon contain up to 15 percent. In a competitive market, hardly anyone would buy ethanol as motor fuel, because the substance has one-third less energy than gasoline and does not make up the difference in price. To the contrary, the higher the ethanol blend, the more money you spend on each mile driven. At current prices, it would cost the average driver $500 a year to switch to E85, a fuel that is 85 percent ethanol, according to fueleconomy.gov, a website jointly administered by the EPA and the U.S. Department of Transportation.

Arkansas governor Mike Beebe’s petition concisely explained why Jackson should have granted the waiver. “Virtually all of Arkansas is suffering from severe, extreme, or exceptional drought conditions,” and accelerating corn prices are “having a severe economic impact” on the state’s livestock producers. “While the drought may have triggered the price spike in corn,” the fuel standards exacerbated the problem — the policy has boosted corn prices 193 percent since 2005. Agriculture accounts for “nearly one-quarter” of the state’s economic activity, and livestock sectors hit hard by rising corn prices “represent nearly half” of Arkansas’s farm sales.

However, the EPA stacked the decks against petitioners, establishing a burden of proof that was virtually impossible to meet. Indeed, the agency’s August 30 Request for Comment telegraphed the decision Jackson reached on Friday. The EPA stated petitioners would have to show that the “RFS itself” was the cause of severe harm, not merely a “contributing” factor. In addition, petitioners would have to show that waiving the RFS would be a “remedy” for the hardship facing livestock producers.

These criteria are ridiculous. The Clean Air Act does not require the EPA to don analytical blinkers and ignore other factors that, in combination with the RFS, cause severe harm, nor does it say that any waiver granted must be a silver bullet.

Severe distress in any state, region, or the nation as a whole typically results from a combination of factors, not a single one. A fuel standard that causes little economic harm when unemployment rates are low, corn production is booming, corn stocks are high, and China’s demand for U.S. corn imports is low could inflict severe harm when the opposite conditions obtain — as they do today.

The EPA’s requirement that the waiver provide a cure for high corn prices is the flip side of the same trick coin. By law, the EPA may grant a waiver for only one year at a time. So even if a multi-year waiver would provide a complete remedy, the EPA could reject each successive one-year waiver on the grounds that it would not solve the problem by itself.

It is true that a one-year waiver may have little impact on the price of corn, given that the market would expect the fuel requirements not only to return, but to continue to rise in a year’s time. In addition, much of the ethanol blended into regular gasoline is used as an octane booster; it cannot be removed until refiners develop a workable substitute, which is unlikely to happen in less than a year. (The substance refiners used as an octane booster before ethanol has been banned in most states.)

The EPA takes an entirely different tack when the issue is not whether to grant regulatory relief but whether to impose additional regulatory burdens. In such cases, even small contributions to an alleged harm are considered sufficient grounds for regulation, and even minute regulatory contributions to the hoped-for solution are deemed fully justified.

Consider the EPA’s greenhouse-gas emission standards for heavy-duty trucks, which will go into effect for model-year 2014–2018 vehicles. The EPA estimates that these standards will reduce atmospheric carbon dioxide (CO2) concentrations by 0.732 parts per million, which in turn will avert an estimated 0.002 to 0.004 degrees Celsius of global warming and 0.012 to 0.048 centimeters of sea-level rise by the year 2100. Such changes would be too small for scientists to distinguish from noise in the climate data. The EPA acknowledges no obligation to demonstrate either that heavy-truck GHG emissions alone harm public health and welfare or that regulating these trucks would take verifiable bites out of global temperatures and sea-level rise.

For sheer results-be-damned regulation, however, nothing beats the EPA’s proposed CO2 emission standards for fossil-fuel power plants. The EPA does “not anticipate any notable CO2 emissions changes resulting from” the standards and, thus, concludes that “there are no direct monetized climate benefits in terms of CO2 emission reductions associated with this rulemaking.” In short, the standards would not even make a negligible contribution to a solution — yet the EPA proposes them anyway.

Such glaring inconsistency is a reminder (if any is needed) that agencies are not impartial umpires but interested parties in the rules they administer.

This cloud may yet have a silver lining. Jackson’s rejection of the waiver petitions exposes the RFS program as an arbitrary, inflexible system that provides corporate welfare to corn farmers at the expense of livestock producers, consumers, and hungry people in developing countries. The EPA’s decision may very well build support for RFS reform — or repeal.